Classics for a Cause Pty Ltd v Grays Ecommerce Group Ltd

Classics for a Cause Pty Ltd v Grays Ecommerce Group Ltd - [2023] NSWSC 967 - NSWSC 2023 case summary — Zoe

[3]

JUDGMENT

HER HONOUR: On 30 November 2021, the first defendant, Grays Ecommerce Group Ltd, held an online auction of classic cars. The "jewel in the crown" of the auction was a 1976 Ford Falcon XC Coupe, which had been restored and modified by a Perth vendor into an award-winning "show car." The plaintiff, Classics for a Cause Pty Ltd, and second defendant, Xclusive Tech Pty Ltd, were both keen to acquire the car so that it could be 'raffled' by their respective businesses for (hopefully) a profit. Both placed bids under the terms of Grays' User Agreement.
Due to a technological error, the online auction closed prematurely, with the plaintiff recorded as the highest bidder at $464,800. This was less than the plaintiff expected to pay, and less than the second defendant was prepared to - and had been trying to - bid. The error was immediately detected and the plaintiff informed that Grays had experienced a technical issue and wished to re-open the auction. The plaintiff vehemently objected, saying that Grays would be hearing from its lawyers if it did. The second defendant was also angry and persistent. Grays' staff vacillated as to how to deal with the situation, initially inclined to take the path of least resistance and proceed with the sale to the plaintiff. The plaintiff rushed to pay for the car, likely in an effort to secure the car for a 'steal'. On further reflection, and after (belated) consultation with the vendor, Grays took action. The User Agreement permitted Grays to take various steps in the event of a technological error. Grays cancelled the first auction and conducted a second auction on 2 December 2021. The second defendant was the highest bidder at this auction, at $860,100.
The plaintiff now sues Grays for damages of between $1.6 million and $2.3 million for breach of the User Agreement. Alternatively, the plaintiff sues Grays and the second defendant for damages for conversion, on the basis that the plaintiff had good title to the car following the first auction. In turn, the second defendant sues the plaintiff for damages said to result from the plaintiff's lodgement of a security interest on the Personal Property Securities Register (PPSR), which prevented the second defendant from dealing with the car for seven weeks. For the reasons which follow, the plaintiff's claim fails where the User Agreement included a release of Grays from such a claim, and for want of contractual breach. The second defendant's cross-claim against the plaintiff fails for want of proof of damage.

[5]

Agency agreement

Mr Bitmead decided to sell the car using Grays. Grays held a classic car auction on the last Tuesday of every month, which was popular. (A classic car is a car over 25 years old). Mr Bitmead dealt mainly with Grays' business development manager in Perth, Denzil Anglin. As the car was in Victoria, Grays' business development manager in Melbourne, Aaron Lofts, was also involved.
In September 2021, Mr Bitmead's company executed an Agency Agreement with Grays. Clause 3 of the Agency Agreement provided: Incorporating Online Terms and Conditions If the Sale of the Assets is conducted on the internet at www.grays.com (Site) it will be sold or held in accordance with Grays's standard terms located on the Site (User Agreement). The User Agreement applies in addition to this Agreement. To the extent of any inconsistency between the User Agreement and this Agreement, this terms of this Agreement apply. …
That is, the terms of the User Agreement were incorporated by reference into the Agency Agreement. I will consider the User Agreement at [20]. There is no relevant inconsistency between the Agency Agreement and the User Agreement.
Clause 6 of the Agency Agreement provided: (emphasis added) Grays is permitted to offer the Assets for sale [by Auction] … Grays is authorised by the Seller to determine the purchaser of the Assets (Buyer).
This reflected the common law position, where the auctioneer is the agent of the vendor: Wright v Madden [1992] 1 Qd R 343 at 347 (per Williams J, Ryan and Dowsett JJ agreeing). The User Agreement contained a number of provisions by which Grays could intervene in the auction process and thereby affect who the winning bidder might be. For live auctions, the auctioneer could refuse to accept a bid, exclude a person from placing a bid, decide to re-offer an item for sale if an issue arose, and finally determine any dispute arising during the auction: clauses 5.1(b) and 8.3(b), User Agreement. In the event of technological difficulties encountered during an online auction, Grays could extend, re-open, cancel and re-hold the auction: clause 4.6, User Agreement. By clause 6 of the Agency Agreement, the vendor conferred authority on Grays to determine the successful bidder at auction, including by these means.
Finally, clause 22 of the Agency Agreement provided: Instability of the Internet Grays will endeavour to ensure that there are no technical difficulties with any Sales conducted on the internet. If the Sale is being conducted on the internet, the Seller acknowledges that the Sale is being conducted in an unstable environment, and releases Grays from any liability arising out of any technical or processing malfunction which is reasonably outside the control of Grays. Grays does not guarantee that the Site will operate uninterrupted or error-free.
That is, to the extent that Grays took steps following technological difficulties, such as extending, re-opening, cancelling or re-holding an auction under clause 4.6 of the User Agreement, the vendor released Grays from any liability which may arise.

[6]

Advertising the auction

On 17 November 2021, Grays posted an advertisement of the car on YouTube, noting that the car would be coming to auction on 25 November 2021. Grays also posted an advertisement on Instagram, describing the car as an award winning elite show car. The auction attracted media interest, with an item on Channel 7. Street Machine published an article about the upcoming auction, noting the car's prize-winning history.
On 23 November 2021, Grays posted a more extensive YouTube video advertising the car, including commentary by retired racing car driver, John Bowe. Grays' Chief Digital Officer, Natalie Ashes, explained that Grays' marketing team used Mr Bowe when they had a "large car or … a car that's worthy of it." The marketing team put together a video and assisted Mr Bowe to prepare a script. On the YouTube video, Mr Bowe described the car as perhaps Australia's greatest street machine. The car had won multiple trophies, was an amazing piece of art with everything custom made, "I have never seen anything that exceeds this … it's world famous, so you can get a world famous custom car street machine at … an online auction, unprecedented I think."
Grays' National Head of Sales for Classic Cars and Bikes, William Freeman, disagreed with the suggestion that the sale by Grays of such a car was "unprecedented," noting "we had sold more expensive cars than that." That said, Grays considered the car to be a high profile vehicle, albeit Ms Ashes added "We regularly get high profile lots." Mr Freeman agreed that the car was the jewel in the crown of this particular auction. Mr Anglin was more effusive; he said that the car was "well and truly" a one of a kind vehicle. He was not aware of any other vehicle like it anywhere and had not seen anything of that calibre auctioned at Grays.
Mr Freeman regarded the car as a one of a kind vehicle and so was unable to estimate its value. Nor did Mr Bitmead set a reserve price. This should not be forgotten in what follows; no-one knew exactly what the car was worth, beyond the fact that it was highly valuable.

[8]

User Agreement

In bidding in an online auction, both the plaintiff and the second defendant did so under the terms of Grays' User Agreement, which governed the Services offered on its websites, including Online Auction sales: clause 18 (Definitions). (It will be recalled that the User Agreement was also incorporated by reference into the Agency Agreement.) The User Agreement noted at the outset: Important. Please note that by entering into this User Agreement, you accept terms which, among other terms, state that: … We do not accept liability for loss arising out of technical and/or software issues associated with Online Auctions … (see clause 9.1 for more information).
Customers were required to register their details and create an account with Grays in order to use the Service: clause 2.1(a). After registration, clause 2.1(e) provided: We will send any relevant notices and communications to you via email, including information regarding: (i) the status of an Online Auction in which you are participating, such as 'you have been outbid' e-mails, or 'you are the Winning Bidder' (or with equivalent wording) emails;
Clause 3.1 set out the process for bidding at Online Auctions, including: (a) When you use the Service to bid at an Online Auction … you are making an offer to buy the item at your bid price. If your bid price is: (i) the Winner's Bid Amount, you will be the Winning Bidder … and must purchase the item and pay any applicable additional fees and charges. In this regard, clause 10.3(e) provided, "Title in any item will only pass to you when we receive the Invoice Amount in cleared funds."
The User Agreement provided for a "going, going, gone" period for Online Auctions in clause 4.5: 4.5 Conclusion of Online Auction or Pass-in Sale (a) An Online Auction, excluding a Live Auction, will close at the end of the time period specified for that Online Auction, provided there are no new successful bids during the 10 minutes immediately preceding the end of the time period specified. If there are any successful bids on a particular lot or item within 10 minutes of the time specified for the close of the Online Auction (the going, going, gone period), the auction will continue to be extended until there are no more within the Refresh Period. We accept no responsibility for any missed or unsuccessful bids result from any slight variation that may occur in the length of the Refresh Period. … (c) When an Online Auction or Pass-in Sale in which you have participated closes and you are the Winning Bidder or Winning Pass-in Bidder, we will notify you of this by e-mail, including the amount of your winning bid and the item number and description. … (e) If you are the Winning Bidder for an item at an Online Auction … you must complete the purchase and purchase that item. As will be seen, the requirements of clause 4.5(a) were not satisfied in respect of the auction of the car, where the Online Auction did not close at the end of the time period specified, that is, including the going, going, gone period.
In the event of a technological error, clause 4.6 of the User Agreement permitted Grays to take action, including by extending the auction, re-opening the auction, retracting any Winning Bidder's email or cancelling the auction and conducting the auction again. I will consider clause 4.6 in more detail at [128].

[9]

Technological problem

Whilst the plaintiff ultimately accepted that the online auction was affected by a technological error, it is nonetheless helpful to understand what happened, as it explains what people said and did at the time. Grays conducts online auctions using an automated system. Each online auction has a closing time. If the last bid is received more than ten minutes before the closing time, then the system will automatically close the auction at the closing time. However, whenever a new and higher bid is received, the auction extends for ten minutes after that bid. This continues until there has been a ten minute period where no new bids have been received, at which time the highest bidder is declared the winner. This last ten minutes, together with any extension of the closing time due to subsequent bids, is the "Going, Going, Gone" period.
Grays used Amazon Machine Images as virtual servers, known as EC2 servers. Ten servers were always on and further servers are "auto scaled" as needed. Mr Ahmed explained that, as the number of bids increases, a new server is "spun up automatically" and, after having passed health checks, is added to the "farm" of servers to service the traffic. (A "farm" is a web farm and refers to all of the servers currently servicing requests). It is not possible to check new servers in advance as they do not exist until they come online. Whilst adding servers is an automated process, it can take up to five minutes to add a server. Mr Ahmed said "Amazon run a lot of scripts … runs those commands, starts them, stops them two or three times before they are ready to be added to the farm." Mr Ahmed added "when there is a big night we try to be a bit over cautious and have [additional servers] ready." As the load decreases, servers are automatically terminated.
Grays had auctions closing on 29 and 30 November 2020, which Grays' head of technology, Ayaz Ahmed, described as significant, as the auctions included high value items which attracted a lot more bidding activity. Mr Ahmed set up a Microsoft Teams chat group with IT staff, to prepare for and support these auctions.
Some of the sales closed on 29 November 2021 without going into the "Going, Going, Gone" period. Mr Ahmed became aware of this on 30 November 2021 and asked one of his staff to look into the matter. As the additional EC2 servers used in the 29 November 2021 auction were now gone, Mr Ahmed could not examine them, "All I could do was monitor the problem." At 2.57 pm on 30 November 2021, a Grays IT officer sent a message on the Microsoft Teams chat group, advising that he had investigated an issue with a bid placed the day before "and it looks like there could be an issue with one of [our] web servers with the date time not correctly set for AEDT." Staff were asked to check all active servers, "also when we spin up a new [server], we should check the setting for it as well." By 4.44 pm, all active servers had been checked, "time appears to be local time on them."
As Mr Ahmed's investigations later ascertained, between 6.02 pm and 6.14 pm, an additional server was added. The server's log recorded an error during the creation process, but was not able to identify the cause of the error. Mr Ahmed concluded that there was a problem with the creation of this server, which caused the server to use Coordinated Universal Time (UTC) time instead of AEDT. Mr Ahmed referred to this as a "rogue" server. This had the consequence that this server recorded bids as having been made 11 hours earlier than when the bid was actually made.
Returning to what was known at the time, as the auctions progressed in the afternoon and evening of 30 November 2021, Grays IT officers communicated in the Microsoft Teams chat group about bringing in more servers to manage website traffic. By 6.21 pm, 14 servers were in use. At 7.14 pm, an IT officer reported "all looking good." At 7.28 pm, "traffic [was] ramping up. At 7.31 pm, twenty servers were needed, "It's coming fast." At 7.32 pm, an IT officer reported that 18 servers were then in use, "we should be ok." By 7.45 pm, 21 servers were in use. The next 30 to 40 minutes were expected to be busy with "lots of [going going gone] and ending cars". At 7.50 pm, an IT officer advised, "We have full capacity in place." At 8.10 pm, "All are running smoothly."

[10]

Auction closes early

As mentioned, the online auction of the car was due to close at 8.30 pm AEST on 30 November 2021. Grays' Head of Auto, Matthew Lang, was not watching the auction but was contacted by a vendor who had four cars listed for auction. The vendor said that the website appeared to be having some issues and all four of his vehicles had closed prematurely. The vendor was happy to let one vehicle sell the way it was, as it had reached his expectations, but asked Mr Lang to re-open the auction for the other three vehicles. Mr Lang "jumped on [his] computer and … could see it for [him]self." Mr Lang assumed there had been a technological issue, albeit that this needed to be confirmed. (Mr Lang was not then aware that there had been a problem with auctions closing early on 29 November 2021).
Grays' executive team communicated on a messaging application called "Slack." At 8.28 pm, Mr Lang sent a message to Ms Ashes and Grays' managing director, Michael Bray, "I think the website is playing up again. Some cars are not going into the going going gone period despite having a bid within 10 minutes. Some people are reporting that some sales all of a sudden are showing 11 hrs to go then revert back to normal." At 8.30 pm, Mr Lang's message was shared with IT staff in the Microsoft Teams chat group. Mr Ahmed immediately noted to his IT colleagues, "We have a burst [server] issue with UTC." (A "burst" refers to the addition of an EC2 server). Another IT officer advised, "Need to check them for time settings". At 8.32 pm, Ms Ashes replied to Mr Lang on "Slack", "It might be the servers scaling out [Mr Ahmed] and the team are o[n] standby I'll get them to look at it."
At 8.29.11 pm, Mr Bailey entered an automatic bid with a maximum bid of $600,000. (I note that this was the upper range of the estimated sale price in the text message exchanged some days earlier: see [17]). While the original closing time for the auction was 8.30 pm, as a bid had been received in the previous ten minutes - the last having been the automatic bid of Mr Bailey - Grays' system did not close the bidding at 8:30 pm and allowed new bids to be made. That is, the auction continued as it had entered the 'going going gone' period.
From 8:30:59 pm to 8:32:14 pm, Mr Portelli entered a series of manual bids. Each bid was below Mr Bailey's maximum bid, so Grays' automated system entered a matching bid for Mr Bailey and his new bid was recorded as the new highest bid. By this means, Mr Portelli's bids increased from $456,100 at 8:30 pm to $464,500 at 8:32 pm, each outbid by Mr Bailey. Each time a bid was made, the system was meant to extend the closing time for the auction for a further ten minutes.
Mr Portelli made a bid at 8:32:14 pm and, as such, the closing time for the auction should have been not before 8:42:14 pm. The problem was that Mr Portelli's last bid was recorded on Grays' system as having a bid time of 9:32:13 am on 30 November 2021. When the system checks if there has been a bid in the last ten minutes, it checks the bid time of the current highest bid. The system checks every minute and looks for a bid in the ten minutes before that bid time. If there is no bid, the system automatically closes the auction. In this case, there had been no bid in the ten minutes before 9:32:18 am and the auction automatically closed at 8:32:31 pm.
Mr Portelli said that the auction closed almost immediately after he had made this bid. It was "definitely" his intention to keep bidding and he would have placed further bids if had been able do so "without a doubt." Nor can there any doubt about this, given Mr Portelli's subsequent communications with Grays and his participation in the second auction.
The highest bid at the time when the auction closed early was that made by Mr Bailey, being $464,900. I note that this was less than the lower range of the estimated sale price in the text message exchanged some days earlier: see [17]. At 8.34 pm on 30 November 2021, Mr Bailey received notification from Grays, on his mobile app that he had won the auction. At 8.35 pm, Mr Bailey received an email from Grays, confirming "YOU HAVE WON." Both the notification and email were automatically generated by Grays' system.

[11]

Initial reaction

The fact that the auction of the car had closed early was immediately noticed. Mr Bitmead was monitoring the auction online and was surprised to see the auction close. He suspected that the auction had closed early. However, Mr Bitmead heard nothing from Grays that evening.
At 8.33 pm, Mr Lang replied to Ms Ashes on Slack, "Too late for a few high value items I'm afraid." Mr Bray of Grays enquired whether that included the car. Mr Lang sent Mr Bray a photo of the website with an error message, adding "Closed not long after that last bid". Mr Bray assumed this was a reference to the car.
Mr Freeman received a call from Mr Portelli, who asked what was going on with the XBOSS auction. Mr Portelli said he had placed a bid and his screen came up with a message about a website problem. Mr Portelli said "I closed it and re-opened it and couldn't see the car. It says that the car sold. It couldn't have. It didn't give me 10 minutes. I really want that car. Can you ring the bidder and offer them $50,000 more than the sale price from me". Mr Freeman agreed to do so. According to an email sent by Mr Freeman the next morning: [Mr Portelli] is very angry with us as he said he would have paid $1M to own the car. He claims that he was the winning bidder and was a bit of a bidding war with the successful bidder. He said he thought he would blow the other bidder out of the water and bid $500k. When he pressed the bid now he said a screen appeared saying that the page couldn't be found. He got back onto our site and couldn't find the car, he then checked in his My Grays and it appeared in lost.
Mr Freeman was then unsure if the problem was on Mr Portelli's end or Grays' end. Mr Freeman did not think he was able to work out whether there was a technical problem that night "because the IT department usually doesn't work … at that time." Mr Freeman said he had tried to contact the IT department on previous occasions "and usually about 6.00 pm is when … they would go home." He was obviously unaware that Mr Ahmed and his staff were already working furiously on the problem.
Mr Freeman called Mr Bray and said he had received a phone call about a problem with the XBOSS sale, where a bidder had advised that the auction had closed early. Mr Bray asked Mr Freeman to call Mr Lang, who had had a few problems as well. Mr Bray said he also told Mr Freeman "we need to get the facts on the crash before we do anything."
At 8.38 pm, Mr Bray enquired of Ms Ashes, "How do we re-open … Big car and we have people calling advising that would have bid more." (By "big car", Mr Gray meant a high value car). It was Mr Freeman who had called advising that people would have bid more. At 8.39 pm, Mr Bray also enquired of Mr Lang, "is that the only car". At 8.40 pm, Ms Ashes advised that Grays could re-open the auction, "Not sure when the last bid came in but I'll get it re-opened". Ms Ashes awaited confirmation; in order to re-open, she needed to know when to re-open and for how long.
Separately in the Microsoft Teams chat group, at 8.38 pm, Mr Ahmed updated his IT colleagues, "XBOSS closed due to UTC issue … This is bad." Mr Ahmed said he posted this message as he assumed that the problem was with an EC2 server using UTC time, as this had been a problem with other auctions. However, he had not then investigated the matter to confirm whether this was the cause. At 8.41 pm, another IT officer responded, "This is disheartening. It can be explained as a technological glitch, but still translates into a serious opportunity cost."
Mr Anglin had also been watching the auction online from Perth and knew, when the sold message came up on the website, that the auction had closed early. He had seen the bidding going up before the sold message and knew that, when the auction had closed, it should still have been in the going, going, gone period. Mr Anglin also thought that the car would have sold for more than $464,900. A couple of minutes later, Mr Anglin received a call from an interested bidder, who asked what had happened, "I can't bid on the XBOSS. I was prepared to pay more." Mr Anglin called Mr Freeman and asked what had happened. Mr Freeman said he did not know and they would have to look into it in the morning. Mr Anglin told Mr Freeman that there were people who would have paid more money.
Returning to Grays' executive team "Slack" messages, at 8.42 pm, Mr Lang responded to Mr Bray's query as to whether the XBOSS was the only car affected, advising he had at least four other cars that were being sold by one vendor "that I know of that were just getting going." At 8.43 pm, Mr Bray asked Mr Lang to talk to Mr Freeman and Mr Lofts "around XBOSS asap. Just sell it or re-open?" Mr Bray agreed that he was seeking Mr Lang's views on these two options, although "it's not the only options across the whole board." As I read Mr Bray's message, he was also seeking to canvass the views of Mr Freeman and Mr Lofts as to what action should be taken.
At 8.44 pm, Ms Ashes pressed Mr Bray for instructions, "Let me know please if you want it re-opened." Ms Ashes said these things were typically time critical. By then it was "pushing 9 o'clock and we need to know if we're going to open it tonight or wait." Ms Ashes had also been contacted by a number of Grays' sales staff by telephone, reporting that sales of cars were closing before the end of the going going gone period. At 8.45 pm, Ms Ashes communicated with the IT staff, "I have reports of heaps of cars not going into going going [g]one." Mr Ahmed enquired, "what time sh[oul]d i put for XBOSS close". Ms Ashes replied, "they are calling the people I'll let you know asap." That is, Ms Ashes understood that a process of consultation was underway in respect of the auction of the car and advised the IT team accordingly.
The enquiries which Mr Bray had asked Mr Lang to make were underway. Mr Lang spoke to Mr Freeman, who advised that the auction for the XBOSS looked like it had closed early; Mr Freeman had spoken to a bidder who told him that they did not get the ten minutes. Mr Lang said he had had similar issues with several cars and was re-opening auctions for ten minutes. Mr Freeman thought at that point that, if Mr Lang had decided to re-open some auctions, then maybe Mr Freeman would do the same.

[13]

Asking Mr Bailey

As soon as Mr Freeman got off the phone with Mr Lang, he called Mr Bailey. According to an email sent by Mr Freeman the next morning: (emphasis added) I straight away phoned the successful bidder who also is a raffle client and said we experienced a technical issue and I wanted to reopen the lot to give it the going going period. Tom Bailey's (successful Bidder) response was car was sold to me and I want it and now I own it.
Of this conversation, Mr Bailey said he was told by Mr Freeman that he could see that Mr Bailey had just won but another bidder was upset as they had issues placing a bid on the car. Mr Freeman asked whether it would be okay for Grays to re-open the auction. Mr Bailey said he would not be okay with that, "I am happy with the price I am paying for it." Mr Freeman asked whether Mr Bailey would accept $500,000 for the car and Mr Bailey replied that he would not accept $1 million, "it doesn't matter what you are offering."
According to Mr Freeman, he told Mr Bailey that there had been website issues, and was contemplating re-opening the auction. Mr Bailey was quite irate and said that, if Mr Freeman did that, he would commence legal action against Grays, adding "I fucking well own the car. I've won the car. You will not be re-opening the auction. You'll be hearing from my lawyers if you do." Mr Freeman said the conversation was quite heated. Mr Bailey denies this.
I prefer Mr Freeman's evidence of the conversation to that of Mr Bailey. Mr Freeman was an impressive witness. He was also one-step removed from these events, having since retired and with no particular interest in his version of events being accepted. Mr Freeman's recollection of what he told Mr Bailey - in particular, that there had been a website issue and Grays was considering re-opening the auction - is consistent with his contemporaneous email, from which it also appears that he told Mr Bailey that the technical issue had deprived the auction process of the "Going, Going, Gone" period. That is, a technological problem had prevented the auction from being conducted in accordance with the process described in the User Agreement. The contemporaneous Microsoft Teams and "Slack" messages confirm that this was then perceived to have been the effect of the technological problem.
Mr Freeman said that, after speaking to Mr Bailey, he decided to delay any decision about the car. Mr Freeman said he informed Mr Bailey that he would have to report to Mr Bray the next morning and see what happened. Mr Freeman told him that he would come back to Mr Bailey "and we left it at that." While Mr Freeman had authority to re-open the auction, several matters gave him pause for thought: the high value of the vehicle, that Mr Freeman did not then know for sure if the problem which Mr Portelli described was an issue with the second defendant or with Grays' website, and Mr Bailey's threat of legal action. Mr Freeman said he wanted to discuss the matter further with Mr Bray the next day and make an informed decision. In addition, by the time Mr Freeman had finished speaking with Mr Bailey, Mr Freeman was concerned that potential buyers would have shut the website down and disappeared. If the auction was re-opened at that time, these bidders would not be there to bid on the car.
Later that evening, Mr Freeman spoke to Mr Portelli again and said "I can't do anything about the auction tonight. I will let you know." Mr Portelli said that there were a couple of telephone calls, back and forth, "when I think everyone was just trying to understand what was going on at that time." According to an email sent by Mr Freeman the next morning: Underbidder is unhappy however I have asked him to cop it on the chin and I will give him a 50% reduction of his [buyer's premium] for the next car he buys from us. This is the only car I know that had an issue.
The plaintiff submitted that telling Mr Portelli to "cop it on the chin" was consistent with Grays having decided to sell the car rather than re-open the auction. This does not necessarily follow, where Mr Freeman did not then know whether Mr Portelli's inability to bid on the car was due to a problem with Grays' website or at Mr Portelli's end. If the problem was that of Mr Portelli, then Mr Freeman's comment would have been apt. Mr Freeman maintained that a decision had not been made at that stage.

[14]

"Selling xboss"

At 8.50 pm, Mr Lang texted Ms Ashes, "not re-opening the XBOSS thanks". Ms Ashes promptly informed the IT team, "they aren't going to open XBOSS just [the three lots earlier sent]". I infer from the lengthy gap between Mr Lang's communications that, in the meanwhile, Mr Freeman had spoken to Mr Bailey and reported back to Mr Lang.
Mr Lang said there was concern that the genuine bidders for the car would have dropped off as they would have seen the auction close. Mr Freeman did not recommend re-opening the auction for this reason. Mr Lang said, "our train of thought that … once they see it closed or sold or whatever it says, they're going to drop off. They're going to turn their computer off and not, and not wait for it to reopen because nobody else has a clue." Nor was Grays in a position to contact the bidders that evening as the administrative staff, who prepared the reports to find out who the bidders were, were not in the office. Mr Lang said that Grays could not have communicated to all bidders that the auction was re-opened, "not at that time of night." Mr Freeman also said that this had "certainly never happened in … my time there." By contrast, Ms Ashes thought it would have been possible to contact the bidders.
At 8.51 pm, Mr Lang sent a Slack message to Mr Bray and Ms Ashes, "Selling xboss." The plaintiff submitted that Grays thereby decided not to re-open the auction but to sell the car in accordance with the contract of sale with the plaintiff and thereby avoid reputational damage and adverse publicity. Certainly, the message is consistent with Mr Lang having decided to proceed with the sale of the car to the plaintiff. Mr Lang variously agreed that he had made a decision but later said he was not prepared to make a decision to re-open the auction without having communicated with the vendor to get his instructions. Mr Lang was a slightly nervous witness who gave straightforward answers, although appeared over-willing to agree with the cross-examiner.
Mr Lang also said the car was "a massive vehicle for the industry, not to mention Grays" and the issue was escalated to Mr Bray to make "a captain's call." Mr Lang was aware that Grays regarded the car as a special vehicle; he had the impression that it was valuable and was told by Mr Freeman that it was "one of a kind" and had sold for less than it was worth. Mr Lang thought that, given the amount of money involved, legal advice should be obtained from Grays' in-house counsel about the User Agreement before a final decision was made. He was aware that Mr Bray was seeking legal advice from Grays' internal counsel and waiting to speak with the vendor, who was three hours behind in Perth, and "we wanted IT to confirm it … on such a big ticket item".
In contrast to Mr Lang, Mr Bray was far from sanguine about the cross-examination process, although I have no reason to think that his answers were not honest. As Mr Lang's manager, Mr Bray said he assumed responsibility for a decision in respect of the car, "I've personally then and now overruled and made … my decision to … go forth on what we do next on this car." While this was not recorded in a Slack message, Mr Bray said: We took the conversation off Slack. Slack's not the only place where you communicate. It's not the only area that we, discussion, decisions are made just on Slack. I took the banter of the conversation off Slack and started the next step of the process.
Mr Bray added, "I don't just talk to [Mr Lang] on the Slack [messages]. I was talking to him on the phone as well." Mr Lang agreed that there were a number of phone calls and communications along the lines of "Let's take a step back, it's a high value vehicle, let's confirm the website had the issue first with IT and, and then we'll consider the next steps."
Mr Bray said the messages exchanged by staff at the time had nothing to do with his decision-making process and he was not using this platform. The decision to re-open the auction was Mr Bray's decision to make. While Mr Bray was aware that the User Agreement allowed Grays to re-open auctions in the event of a technological error, he said he decided to think it through rather than act immediately. Mr Bray did not think it was appropriate to re-open the auction immediately as he understood that this was a special car and likely to be valuable. He wanted to get the facts about the website crash and to get the decision right. Mr Bray had to make sure that there was an actual technological error and that Grays had the right to re-open the auction. He was comfortable waiting to confirm this rather than making an immediate decision.
As far as Ms Ashes was concerned, a decision had been made, which was communicated to her at 8.51 pm. The decision was not to re-open the auction, but Ms Ashes did not agree that a decision had also been made and communicated to proceed with the sale, "that hadn't been communicated to me clearly. … I'm not talking to the vendor. … It hadn't been communicated to me clearly what was happening with it, just not to re-open it."

[17]

Trying to pay

At 7.31 am on 1 December 2021, Grays emailed an invoice to Mr Bailey. Grays' invoices are automatically generated and sent. The invoice, including buyer's premium, totalled $499,767.50. Payment was due on 2 December 2021. The invoice noted that title did not pass until paid in full. Grays' cover email stated that the invoice must be paid in full by cash paid by a direct deposit into Grays' bank account within two working days from sale closing date. Bank, personal or business cheques were not accepted as cleared funds. Goods purchased would not be released until funds had cleared through Grays' bank account. Grays' bank account details were provided.
By midday on 1 December 2021, Mr Flanagan was at the bank endeavouring to pay Grays' invoice by money transfer. Mr Flanagan exchanged text messages with Mr Freeman to obtain Grays' address details and to provide receipts for payment. Mr Freeman agreed that he was encouraging Mr Flanagan to pay. Whilst Mr Freeman maintained that he was still unsure as to the decision which would be made by Grays, "I always get the money in the bank. … If it went their way … they've paid for the car." At 12.25 pm, the funds were withdrawn from the plaintiff's bank account in Maroochydore. In fact, the plaintiff's bank transfer did not go through, to which I will return at [96].
Mr Bailey posted an Instagram story in respect of the XBOSS, including the notification from Grays that it had successfully purchased the car for $464,900, "We found the perfect car to kick off the new year …"
Mr Portelli remained unhappy, seeking an update from Mr Freeman at 1.25 pm. Mr Freeman replied at 1.41 pm, "Still waiting." Mr Freeman's reply is consistent with an understanding on his part that Grays had yet to make a decision in respect of the car.
Mr Bailey said he also rang Mr Freeman and suggested that the other bidder buy the car off the plaintiff later. The plaintiff could promote the car with the option of the winner accepting a cash alternative. If the winner chose the cash, then the plaintiff could sell the car to the other bidder. Mr Freeman said this would not work as he did not consider that it would be attractive to the under bidder, which was willing to bid up to $1 million for the car. The suggestion proffered by Mr Bailey is consistent with an understanding on his part that there was an issue with the auction, to which he proposed a solution.

[18]

Speaking to the vendor

Mr Anglin spoke to Mr Bitmead, who said that something did not seem right at the end of the auction. Mr Bitmead thought the auction was supposed to go for 10 minutes after the last bid was placed and there should have been no price movement for 10 minutes before the auction closed. Mr Anglin said he thought it had something to do with the auto bids. Mr Bitmead thought this seemed unusual and not what he expected "but it is what it is." Mr Anglin did not, at that stage, tell Mr Bitmead that the website had crashed. He said "the winning bid came in at the 10 minute mark. It is all okay."
Mr Anglin accepted that this was a lie. Mr Anglin said he did not tell Mr Bitmead that the website had crashed "because I had no direction from Grays at that point in time." Mr Anglin did not want to say that something was wrong as, at that stage, he did not know if Grays would do anything about the website having crashed. He did not know what stance Grays would take. Against this, the plaintiff submitted that Mr Anglin's lie was consistent only with Grays having a decision to sell the car the previous night. It is certainly consistent with such a decision having been made, but it is not the only possible explanation. Mr Anglin's explanation is also plausible; he was a candid witness whose evidence I accept.
Mr Anglin also told Mr Bitmead that Grays had already received the money for the car and so Mr Bitmead should get his money in a couple of days. By then, Mr Anglin had looked up Grays' computer system to see if payment had been made; payment had been receipted and was showing in the system. Mr Anglin's evidence in this regard is odd, where the plaintiff's attempt to pay the invoice had failed. It may be that whatever he viewed on Grays' system indicated that payment had been made but the funds had yet to clear.
In any event, Mr Bitmead asked whether the plaintiff usually paid that quickly and was informed, "No, they normally take about a week to pay for cars." Mr Anglin said he did not specifically refer to the plaintiff but agreed that generally, when an item was sold for a large sum "it's a rarity that we ever receive payment quickly." The conversation ended with Mr Bitmead repeating that something did not seem quite right in the way the auction finished and that it was paid for so quickly after the auction.

[19]

Incident report

On 1 December 2021, Mr Bray spent the day speaking to various people about what happened and, at some stage in the day, received confirmation that there had been a technological error. Mr Ahmed prepared the initial drafts of an incident report, noting that going going gone functionality did not kick in. The root cause was identified as a burst instance with an incorrect time setting of UTC instead of AEST, which resulted in an incorrect last bid time recorded against some lots and the sale of lots closing instead of pushing them into going going gone. In cross examination, Mr Ahmed was emphatic that there was no human error. Mr Ahmed was a straightforward witness, whose evidence I accept.
Mr Bray spoke to Grays' general counsel and obtained legal advice. Mr Bray also spoke with Grays' chief executive officer, Chris Corbin, to advise him about the situation. By the end of the day, Mr Bray concluded that there had been a technological error and that something would need to be done.
In the early hours of 2 December 2021, Mr Anglin expressed his disquiet in an email entitled "Moral obligations on the failure of our Website XBOSS," stating: I'm really not comfortable with the result last night, I've had too many phone call's from people willing to pay more and our system failed. Our reputation is a key to our future success, the owner of XBOSS is questioning me on why it finished early, I'm lying to him, let's be strong and say our system failed. I'm not comfortable with how I'm felling at present. We can be honest and say that our website crashed … I really don't know where we sit, however [Mr] Lang has a buyer a @500,000 and I've got a buyer saying $700,000+ I've sat up for a long time writing and re writing this email and I'm feeling for Chris B[i]tmead the vendor, I've gone through a whole email and talked with Chris .b having to have to console him of the loss of he's child. The XBOSS. I'm not comfortable with what I've sold and delivered. P.S. The Invoice is payed.
As far as Mr Anglin was then aware, Grays' decision was "still up in the air. I was writing that email to hammer it home that this isn't right." At 6.57 am, Mr Bray forwarded Mr Anglin's email to Mr Lang, copied to Mr Corbin, "The facts are that the website has had an issue. We can't change that and we have [our IT staff] working tirelessly on rectifying it for the future." Mr Bray suggested that they agree on a plan and how to react to each seller. Mr Lang was asked to speak to Mr Anglin and Mr Freeman, "Don't want Denzil to feel unease with anything he's doing." Mr Lang was asked to glean Mr Anglin's thoughts on how to approach the matter and also to consider what was best for the company, "Not sure lying is the direction when plenty of people are aware of it."
Earlier that morning, Mr Portelli had texted Mr Freeman, "I know the owner but I'd prefer to talk with you. He could have gotten so much more money for that car if it wasn't for the Grays' error. I'll offer a million." At 7.15 am, Mr Freeman texted Mr Portelli, "There is a meeting this morning." Mr Freeman was unable to attend the meeting due to another commitment. There is no evidence of who attended the meeting, or what was discussed. I infer that what was said at the meeting did not assist Gray's case.
Mr Bray spoke with Mr Lang and told him "I have decided to re-open the sale if the seller is okay with it. We need to get the seller's view." Mr Bray said that the decision to re-open the auction was made by him. He took his time making the decision as he wanted to get it right and to have all of the relevant information when he made the decision. As best he could, Mr Bray considered that he needed to do right by the buyers and the seller. He had to take into consideration the interests of the successful bidder, the seller and other potential sellers and also consider IT and legal issues.
Meanwhile, at 8.34 am, an accounts receivable officer of Grays emailed Mr Bailey, requesting a copy of a remittance notice to validate the funds. Mr Bailey replied that this had already been sent to Mr Freeman the day before "but let me know if you don't have it." The accounts receivable officer advised that they had not received it, and requested a copy. At 10.06 am, Mr Bailey provided the remittance notices to accounts receivable, "It should have hit the account on your end by now."
At 9.46 am, Mr Freeman sent a text message to Mr Anglin, asking him to call Mr Lang. Mr Lang told Mr Anglin that Grays should re-open the auction. He asked Mr Anglin to go to the vendor and see if he was okay with this and to then contact the top four or five bidders and tell them that the auction was re-opened. Mr Anglin was unhappy that the car would be sold at a closed auction but was told that a decision had been made. Mr Anglin told Mr Lang that he knew someone who was willing to pay $700,000 for the car.

[20]

Speaking to the vendor (again)

Mr Anglin called Mr Bitmead and said there was a problem with the way the auction ended due to a technical glitch. Grays had received a number of calls from people who had raised concerns about not being able to place a bid. With Mr Bitmead's permission, Grays wanted to re-open the auction. After some discussion as to whether the auction should be opened to a limited number of bidders, or to all, Mr Bitmead agreed to Grays' proposal. Mr Anglin said that once Mr Bitmead discovered that there were more buyers for the car and people were not able to bid, Mr Bitmead was very keen for it to be put back up for auction but "it's still his asset at the end of the day … so I had to put it back onto Chris." As to whether Mr Bitmead supported the decision to re-open the auction, "100% I did."
At 10.52 am, Mr Lang reported to Mr Bray: Denzil is on board and more importantly as is the vendor to re-opening the sale for a short period later today as a closed auction. The top 5 or so bidders will be contacted by [Mr Freeman]. He will explain briefly explain that a review was conducted of the auction and a website issue was confirmed and that in the interests of fairness the auction will re-commence later today and encouraged participate. … … I will come back to you with any feedback from the original winner of the sale.
Once Mr Bray had received the seller's agreement, he was comfortable that the best decision was to re-open the auction. Mr Bray denied that the second auction was held as a closed auction in order to limit adverse publicity for Grays. Rather, it was a high value item where there were a small number of buyers that actually had the money to buy the item. Mr Lang explained that the reason the car would be sold at a closed auction was so there was no chance of a repeat of the system overloading and crashing. Mr Anglin held a different view, "by only inviting specific people to the sale, there might been other people in the background that are loaded up with money that might want to have a go at that car right at the last minute."
At 12.15 pm, Mr Freeman reported to Mr Lang and Mr Bray on a call to Mr Bailey, advising of Gray's decision to re-open the auction for a short period due to the auction being terminated early due to a technological issue. He didn't accept it well and advised the following, 1. They will pay $100,000 - over and above the price they offered at the auction. Should Grays not accept this offer, they will commence legal proceedings against Grays for loss of income. Based on their projected sales figures, this will be in the vicinity of $2,000,000. ($2M) I advised Tom Bailey that I will pass on his comments to our Executive and will come back to him with any further updates. Would you please confirm that the decision to reopen the auction still stand.
The fact that Mr Bailey offered an additional $100,000 to buy the car indicates that he appreciated that the result of the first auction was imperilled. However, Mr Bailey did not accept that he then understood that Grays was not going to honour the outcome of the first auction. Mr Bailey maintained "it was still up in the air until 20 minutes before the [second] auction." I do not agree. Whilst Mr Bailey may have received 'mixed messages' from Grays the day after the auction, Mr Freeman clearly communicated Grays' decision to take action under clause 4.6 of the User Agreement. Mr Bailey continued to seek to dissuade Grays from this course, to no avail.

[21]

Trying to pay (again)

After his call with Mr Freeman, at 12.18 pm Mr Bailey requested the accounts receivable officer at Grays to send a "zero" invoice and receipt for payment of the vehicle.
For Mr Freeman's part, after being informed of the decision to re-open the auction, he spoke to someone from accounts and was told that the invoice for the sale had not been cancelled. Mr Freeman called Mr Bray and said the invoice needed to be cancelled as soon as possible as the sale had been cancelled; Mr Bray asked him to attend to this. Mr Bray did not recall why this had not been done earlier, "but this was not the top of my agenda. At 12.56 pm, Mr Bray instructed Mr Lang that, if Grays had not received the money yet, "cancel the invoice asap. Then, the funds will just be in our bank account with nowhere to go." At 1pm, Mr Lang asked Mr Freeman to confirm and action this request.
At 1.00 pm on 2 December 2021, Mr Bray and Ms Ashes exchanged "Slack" messages regarding holding a second auction: BRAY: XBOSS - we are listing again in private auction tonight. Seller/Winning Buyer/under bidder wars the past 2 days/ Best outcome is to have a closed auction. See what happens tonight and if it increases in value … ASHES: I have a report on what happened i'm just waiting on [IT] to clarify a few things that he has "skimmed over" e.g. human error … BRAY: Ok, the buyer will take us to court and [Grays' general counsel] advised that we can only cancel if it was a technical issue …Bit worried now ASHES: oh yes it was a tech issue BRAY: cool ASHES: don't worry about that, it was a server setting that was UTC instead of our time BRAY: Scared me for a 2nd when you said human error ASHES: there are 20 servers basically and they checked about 10 and not the others because all 10 were correct …but the query had a tech problem in it BRAY: I am with you. … ASHES: Sorry thats what I mean. All tech issues in my opinion can be fixed by a human but the same page. … the positive is that Jeff agreed to hired someone outside of Ayaz's team to take the infrastructure part. Which means when you ask me to put my hand on heart we won't have an issue I can say yes
Ms Ashes said she wanted to ensure that Mr Ahmed "covered off" whether or not it was human error and wanted him to go into more detail where initial drafts of his report were "light on." Certainly, there appears to have been several drafts of the incident report, with the first issued on 8.57 am on 1 December 2021 and the final version at 10.55 am on 2 December 2021. Mr Bray said that he "jumped on" Ms Ashes' reference to human error straightaway "and then obviously you can see … it worked itself [out] by the end of the conversation." That is, there was a technological error enlivening Grays' contractually conferred power under clause 4.6 of the User Agreement, as was ultimately accepted by the plaintiff at trial.
At 1.47 pm on 2 December 2021, Mr Freeman instructed the accounts receivable manager not to apply any funds received against the invoice, "I believe we have rec'd funds. Please keep funds in trust account."
Unrelatedly, Mr Flanagan had been contacted by the bank and told that the transfer to Grays could not be processed, as the payee's name was inserted in the form as "XBOSS," which was not a valid address. Mr Flanagan and Mr Bailey agreed that Mr Bailey would go back to the bank and arrange for payment.
By 2.00 pm, Mr Bailey was at the bank, arranging payment of Grays' invoice. Mr Bailey was evasive when answering a long series of questions as to why he persisted in his efforts to pay for the car, having already been told that a second auction would be held. Mr Bailey said he was seeking to fulfil the plaintiff's obligations under the contract, "just wanting to do the right thing and pay the money … I didn't think they would actually re-do the auction. … it wasn't completely set in stone at that stage, so I thought the best thing I can do is pay for the car that I'd brought at auction." Mr Bailey thought there was some hope that Grays would not be re-opening the auction. Mr Bailey maintained, "In my head it was still up in the air." More likely than "just wanting to do the right thing," Mr Bailey was endeavouring to put the plaintiff in the best position in respect of its rights to the car, by seeking to acquire good title before the second auction was held.
At 2.03 pm, the accounts receivable manager emailed Mr Freeman and Mr Lang, advising that the buyer had already contacted the team checking on cleared funds, "funds are currently NOT cleared and the buyer has been advised". The manager enquired what advice should be given if the buyer called again and the funds had cleared, "Continue to advise uncleared?"
At 2.04 pm, the bank gave Mr Bailey a receipt.
At 2.08 pm, Mr Lang replied to the accounts receivable manager: Absolutely. They must remain if possible in the trust account and not reconciled. In the event they are then continue to advise funds are not clear. Mr Lang agreed that instruction the accounts receivable manager in this way may have resulted in lying to the buyer.
At 2.19 pm, the accounts receivable manager emailed Mr Lang and Mr Freeman again, noting that the buyer was on the phone requesting whether the funds had cleared and the invoice had been paid, "Team advising not yet cleared". At 2.27 pm, Mr Freeman asked the manager to cancel the invoice for sale immediately.
Grays admitted that it received clear funds sometime between the close of business on 2 December 2021 and 9.00 am on 3 December 2021. The plaintiff complained, quite rightly, that Grays failed to produce a bank statement which may have shed more light on the matter. But it does not matter where the plaintiff had already been informed that Grays was taking action under clause 4.6 before it attempted to transfer the funds. Indeed, even if Grays had already received the funds, this would not have prevented Grays from taking action under clause 4.6: see [137].
At 3.12 pm, the plaintiff's solicitor emailed Grays, advising that the plaintiff would challenge any attempt to conduct the auction again, suggesting inter alia, that Mr Portelli had simply been outbid and describing the suggested "technical glitch" as suspicious. The email was certainly put in strong terms, suggesting that criminal charges may be laid.
At 3.22 pm on 2 December 2022, Mr Freeman sent a text message to Mr Bailey, "Your lawyer missed the bit where I advised you that the seller was the one that raised the concern with Grays." Mr Freeman asked Mr Bailey to call. As Mr Freeman later reported to Mr Bray and Mr Lang on their call: Tom Bailey (Top Bidder) has just called me and offered the following. He is happy for us to reoffer XBOSS and he will keep bidding until he wins it. He will pay what he bid Tuesday night and Grays can pay the balance. I said to Tom that I cannot make any decisions on this matter however if I could, I would not agree to this. He asked me to pass this offer on to the person that can make the decision. I said why would he expect Grays to pay the balance. He stated that it is his intention to email his database of clients (300,000) and explain to them this situation and that his email could have potential brand damage to Grays. I did say that I wouldn't do that however I can't stop him and that if he does, he should be very careful in what he writes.
Mr Bailey denied the conversation as reported by Mr Freeman; rather, Mr Bailey said he did not want Grays to re-run the auction, "I just want my car". Mr Bailey also said "I have an obligation to tell my customers of Grays' misconduct. The XBOSS is worth way more than $1 million to us. There is so much reputational damage and money at stake for us, we will have to go to court over this." Mr Bailey's readiness to threaten Grays - even on his own account of the conversation - is regrettable. Mr Freeman spoke to Mr Bray and conveyed the plaintiff's offer. Mr Bray said that Grays would not entertain this.
At 5.56 pm on 2 December 2021, Grays' solicitor replied to the plaintiff's solicitor, advising that Grays was contacted by other bidders after the auction finished and advised that they were unable to place bids towards the end of the auction. On investigation of those complaints, Grays ascertained that there had been a technological error. Mr Freeman had contacted the plaintiff to advise that the auction had been cancelled in accordance with the Agency Agreement and User Agreement. The invoice which had been automatically generated by Grays was cancelled, "No moneys had been received by Grays at the time of this letter. If Grays receives any funds from your client, they will be returning those funds to your client." Grays had chosen to cancel the auction under clause 4.6(e) of the User Agreement. No contract existed on which the plaintiff could rely. The car was listed for further auction.
Separately, Mr Freeman informed Mr Bailey that the auction would be re-opened at the last bid price, with Mr Bailey as the bidder. The funds held by Grays in its trust account on his behalf could be applied against the lot if he was the successful purchaser. Otherwise, the funds would be refunded once cleared. Mr Bailey was provided with a link to the online auction. Mr Bailey asked Mr Freeman to set an auto-bid of $750,000 for the vehicle.
Mr Bailey and Mr Freeman spoke again, following which Mr Bailey emailed Mr Freeman at 6.36 pm, "to explain the difficult position you are potentially putting us in with our customer list of approximately 300,000 as well as our wider following on social media and our veteran database of 200k." After winning the auction on Tuesday, we announced to our customer list that we had won the auction on Grays to purchase the car which would then be part of an upcoming prize draw. If Grays now refuse to acknowledge or honour our recent win at auction for the XBOSS we will have to inform our customer list why this has occurred including: • That shortly after winning the raffle we were offered more money by another bidder and turned that money down to keep the XBOSS in order to give it away to our loyal client base. • That after we turned down the extra money that Grays cancelled the result of the auction because of technical issues and then placed the car back up online for auction. • That our competitor has used its influence with Grays after becoming upset after losing the bidding battle. We have an obligation to inform our database on classics of 300k+ people, as well as on social media and to our veteran charity database of 200k veterans as this will no doubt impact the results and funds that we donate to these charities. We need to do this because we have promised this vehicle and now we need to take it back an offer an explanation for this so that they know that we were not attempting to mislead them. Also, people are currently buying our VIP memberships and we will then need to refund to any of those who purchased thinking that would help their odds of winning the XBOSS.
Mr Freeman was unimpressed - as am I - querying "is this defamation" and advising Mr Bailey that he would forward the email to Grays' legal team.

[22]

Second auction

The second auction began at 7 pm. The auction was open until 9 pm but continued until 9.11 pm, with Mr Portelli as the highest bidder at $860,100. Mr Bailey was the underbidder at $860,000. Mr Bailey said he stopped bidding because the bids were nearly double his winning bid at the initial auction and it did not seem right to bid on a car he thought he had already won. More likely, as Mr Bailey volunteered in cross-examination, the plaintiff had no further funds to bid.
On 3 December 2021, Street Machine updated its readers, reporting that the XBOSS had set a new sales record for an Australian-built elite show car. Mr Bitmead is reported as saying "I was comfortable with the initial result. Yesterday's result was a fantastic bonus." Mr Bitmead agreed that the article was accurate, but added that his reported comments did not reflect how he actually felt, "Not really, no, although I didn't really want to go on public record as being sort of dissatisfied with the, with the result for the auction." Mr Bitmead was an impressive witness; I accept his evidence.
On 3 December 2021, the accounts receivable officer asked for Mr Bailey's bank account details to refund the $499,767.50. (The funds were later refunded.) The plaintiff's solicitor sent a letter of demand, asserting that title had passed to the plaintiff on 1 December 2021. Grays' ability to cancel the auction under clause 4.6 of the User Agreement was said not to have affected the contract of sale that came into existence on the conclusion of the first auction. Later that evening, the plaintiff registered a security interest on the PPSR in respect of the car.
On 7 December 2021, these proceedings were commenced. At the same time, Mr Portelli put a post on Instagram of himself posing in front of the car with a big grin. One of the plaintiff's customers messaged Mr Bailey "I thought you won this. I see [the second defendant] has it as a giveaway car??".
On 21 January 2022, the plaintiff discharged the security interest registered on the PPSR. The plaintiff advised the defendants that it elected not to pursue the remedy of specific performance against Grays or to seek return of the car from the second defendant but to pursue its claim for damages. Notwithstanding this - and for no known reason - the second defendant did not proceed to "trade promote" the car. The car remains with the second defendant.

[23]

Did the contract of sale include clause 4.6 of the User Agreement?

The first question is that posed in the plaintiff's letter of demand: did the User Agreement, in particular, Grays' right to cancel an auction under clause 4.6, form part of the contract of sale which came into existence on the conclusion of the first auction.
At common law, a sale by auction involves three contracts, as described by Lord Denning in Chelmsford Auctions v Poole [1973] 1 QB 542, "The first is the contract between the owner of the goods (the vendor) and the highest bidder to whom the goods are knocked down (the purchaser). That is a simple contract of sale to which the auctioneer is no party": at 548. The second is the contract between the vendor and the auctioneer (here, the Agency Agreement incorporating the User Agreement by reference). The third is the contract between the auctioneer and the highest bidder (here, the User Agreement).
As to the first contract, a contract of sale comes into being when the hammer falls: section 60(2), Sale of Goods Act 1923 (NSW); Phillips v Butler [1945] 1 Ch 358 at 361. Grays' automatically generated email notifying the plaintiff "YOU HAVE WON" was equivalent to the fall of the hammer: Smythe v Thomas [2007] NSWSC 844 at [35]. Grays was not a party to the contract of sale which then came into existence between the vendor and the plaintiff.
Obviously enough, the parties can agree to vary the application of the common law to their particular transaction. As Professor John Carter explained, "The law of contract comprises many general and particular rules which determine the rights and obligations of the parties on a presumptive basis. These rules are 'default rules' in the sense that they apply unless the parties have agreed to the contrary: J W Carter Contract Law in Australia (LexisNexis Butterworths, 7th Edition, 2018) at [2-02]. This basic principle is given statutory effect in respect of the contract for the sale of goods. Section 57 of the Sale of Goods Act 1923 (NSW) provides, "where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement."
The same can be said of the contract of sale which arises at the conclusion of an auction, as made plain in Chelmsford Auctions v Poole in the passage immediately preceding that earlier cited. Lord Denning there noted, "It seems to me that the case depends largely on the conditions of sale which were exhibited on the premises, and which, it was conceded, govern the transaction": at 548. Before considering those conditions, "the common law apart from conditions" was set out (as above).
As is noted in Halsbury's Laws of Australia, the seller can impose auction conditions, which may be incorporated into the contract for sale: at [30-80]. In Handbury v Nolan (1977) 13 ALR 339, which concerned an auction of cattle, Barwick CJ (Jacobs and Aickin JJ agreeing) observed that the oral contract of sale incorporated the terms of the catalogue and written terms of sale: at 341. In Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217, the conditions of sale at an auction of real property stated that the successful bidder was required to pay the deposit and sign the contract of sale immediately the property was knocked down to them. Ormiston J held at 232: Once accepted by the fall of the hammer his offer was converted into a single oral agreement containing all relevant terms in the auction contract, including not only the agreed terms of purchase but also the terms requiring signature and payment of the deposit.
More recently in Smythe v Thomas, the vendor listed a rare vintage aircraft for sale on eBay for ten days for a minimum bid price of $150,000. The bidder had made such a bid and been notified by eBay that he had "won" the aircraft. The vendor and successful bidder had each accepted eBay's terms and conditions. The vendor argued, however, that whilst the vendor and purchaser each had a contract with eBay, "Those parallel contracts never crossed over in to an agreement between" the vendor and purchaser: at [22]. Rein AJ rejected this submission, concluding that a binding contract had come into existence between the vendor and bidder, which the buyer was entitled to enforce. At [37]-[38]: 37 I do not accept the [seller's] contention that arising out of the registration and bidding process I have described, there were contracts only between eBay and the buyer and between eBay and the seller. It has been recognised even in relation to traditional auctions that existence of a contract between vendor and auctioneer can sit together with a contract between the vendor and purchaser (and between the auctioneer and purchaser): see Elder Smith Goldsbrough Mort Ltd v McBride & Palmer [1976] 2 NSWLR 631, following Chelmsford Auctions Ltd v Poole [1973] QB 542; [1973] 1 All ER 810. The eBay terms and conditions created a framework for the auction in which the plaintiff and defendant were willing participants. 38 Online auctions are not the only commercial environment in which parties come together pursuant to agreed guidelines and are able to form contracts in a different way to the usual fashion of formal offer and acceptance. "Scratching the slip" at Lloyds as explained in M A Clarke, "The Law of Insurance Contracts" (2006) 5th ed, London: informa, para [11-3A], is but one example of such a process.
That is, whilst the auctioneer is not a party to the contract of sale which comes into existence on the conclusion of an auction, the contract may include the terms promulgated by the auctioneer as to how the auction process will be conducted and what steps must, or may, be taken at the conclusion of the auction.
In this case, the vendor and bidders agreed to be bound by the User Agreement. The User Agreement "created a framework for the auction in which the plaintiff and [the vendor] were willing participants": Smythe v Thomas at [37]. The User Agreement contained a number of provisions concerning matters after auction, including payment, delivery and warranties. Where the vendor and bidders had agreed that the auction would be conducted in accordance with the User Agreement, I consider that the contract of sale which came into existence at the conclusion of the first auction incorporated its terms. The common law 'default rules' were modified accordingly such that the contract for sale included, in particular, clause 4.6 of the User Agreement.

[24]

Construction of clause 4.6

The next task is to consider the terms of clause 4.6 of the User Agreement, which provided: (emphasis added) 4.6 Technological errors With respect to Online Auctions and Pass-in Sales, if any errors or delays arise as a result of or in connection with technological difficulties, including technological difficulties associated with our servers, data hosting centre, internet service provider or software for Live Auctions, we may, acting reasonably: (a) prior to or after the original time set for conclusion of the Online Auction or Pass-in Sale, extend an Online Auction or Pass-in Sale for the period of time we choose; (b) prior to or after the original time set for conclusion of the Online Auction or Pass-in Sale, re-open an Online Auction or Pass-in Sale for a period of time we choose; (c) prior to or after the conclusion of an Online Auction or Pass-in Sale, retract any Winning Bidder's or Winning Pass-in Bidder emails which may have been sent out to bidders; (d) prior to or during an Online Auction, amend the start price allocated to an item for sale online; and/or (e) cancel an Online Auction or Pass-in Sale and conduct the Online Auction or Pass-in Sale again.
Several features of this clause are noteworthy. First, Grays' right to take action under clause 4.6 applies only where there have been technological difficulties, that is, something has gone wrong with the auction process. The purpose of clause 4.6 is to allow Grays to rectify what has been a defective auction not conducted in accordance with the terms of the User Agreement, and for a proper and fair auction process to take place. Second, the word "may" indicates that, in the event of a technological error, Grays can, but is not obliged to, take action as described in sub-clauses (a)-(e).
Third, a limit is imposed on Grays' contractually conferred power to so act, being that Grays must act reasonably. I consider that the obligation to act reasonably is two-fold: Grays must act reasonably in identifying which action to take; and, Grays must act reasonably in implementing that particular action. "Acting reasonably" has an important temporal aspect, focussing attention on the Grays' conduct at the time: Sugar Australia Pty Ltd v Lendlease Services Pty Ltd [2015] VSCA 98 at [142] (per Kaye JA, with whom Osborn and Ferguson JJA agreed on this issue). Further, the phrase "acting reasonably" also imports the notion of an objective standard of conduct. That is, Grays must have been acting reasonably, viewed objectively, having regard to the information and facts then known, or which reasonably ought to have been known to Grays at the time: Sugar Australia at [144].
I note that several provisions of the User Agreement were directed to ensuring the integrity of the Online Auction. Clause 1.3, entitled "Obligation to maintain system integrity", prohibited the customer from interfering with the proper working of Grays' website, including by imposing an unreasonable or disproportionately large burden on the site: clause 1.3(a) and (b). Grays, "acting reasonably", was entitled to block, suspend or terminate a customer's access if a customer breached various clauses of the User Agreement which, by their nature, undermined the integrity of the online auction process: if Grays reasonably suspected that a customer was engaged in fraudulent or criminal activity; if a customer used false or misleading information when registering to use the Service; if a customer was under-age, bankrupt or insolvent; if the customer provided information which was not true, accurate and complete, was false or misleading, infringed intellectual property rights or contravened the law, was defamatory, threatening or harassing, obscene, pornographic or used malware; or, if the customer engaged in bid manipulation or betting: clause 1.3(f).
In a similar vein, clause 4.1(f) provided: (f) We may close an Online Auction before the scheduled closing time if: (i) we suspect there is or may be fraudulent or malicious bidding; (ii) there are or may be processing or systems errors; (iii) there are or may be technological errors or Site failure; … This clause did not apply here. Grays did not close the Online Auction before the scheduled closing time. The auction closely prematurely as a consequence of a technological error.
Where the overriding theme of the User Agreement is to ensure the integrity of the auction process for all participants, I consider that an important factor pointing to whether Grays was "acting reasonably" in selecting and implementing one or more of the actions described in sub-clauses (a)-(e) is whether Grays' selection, and implementation, of the action supported the integrity of that process.
Fourth, the words "and/or" indicate that Grays was not limited to taking one of the potential actions, but could take more than one action. Indeed, the language permits Grays to take all of the actions described in sub-clauses (a) to (e). Logically, of course, implementing one action may make it impossible to then take another action. Aside from this, the only constraint on Grays' ability to take more than one action is its overriding obligation to act reasonably.
Finally, each of sub-clauses (a) to (d) specified, at the outset, a time limit within which the action in that sub-clause could be exercised. By distinct contrast, no time limit was specified in the opening words of sub-clause (e), within which Grays could cancel an Online Auction and conduct the Online Auction again. The only contractual constraint on the time in which Grays was entitled to cancel an Online Auction and conduct the Online Auction again was the obligation to act reasonably.
What is meant by 'cancel' in clause 4.6(e)? The principles of contractual construction are notorious and need not be re-stated. While not defined in the User Agreement, it is a common word, defined in the Macquarie Dictionary as: 1. to decide not to proceed with (a previously arranged appointment, meeting, event, etc.). 2. to cross out (writing, etc.) by drawing a line or lines over. 3. to make void; annul. 4. to mark or perforate (a cheque, postage stamp, bus ticket, etc.) to render it invalid for re-use. …
The word is used in this sense in the User Agreement, having regard to the whole phase, "[Grays may] cancel an Online Auction … and conduct the Online Auction … again". After Grays has cancelled the auction, it will take further action: hold another auction. Obviously enough, Grays cannot auction an item which has already been sold. It follows that the parties agreed that, in the event that Grays cancelled an auction, any contract for sale which had come into existence at the conclusion of the cancelled auction was null and void. Otherwise, the power conferred on Grays by clause 4.6(e) would be commercially ineffective. The Court is entitled to approach the task of construction on the assumption that the parties intended to produce a commercial result, construing the contract so as to avoid making commercial nonsense or working commercial inconvenience: Electricity Generation Corporation v Woodside Energy Ltd at [35] (per French CJ, Hayne, Crennan and Kiefel JJ), citing Codelfa at 350 (per Mason J).
A further issue of contractual construction arose in respect of clause 4.6(b). The plaintiff contended that the right to re-open an auction could only be exercised before the auction concluded. The submission is at odds with the plain and ordinary meaning of the words. An auctioneer can only "re-open" an auction which has closed. Obviously enough, this action can be taken after the close of the auction and, indeed, cannot and need not be exercised while the auction is underway. Consistently with this, the ability to re-open an online auction may be exercised "prior to or after" the original time set for conclusion of the auction. Where the original time set for conclusion of this auction was 8.30 pm on 30 November 2021, clause 4.6(b) permitted Grays to re-open the auction after 8.30 pm in the event of a technological difficulty. The sub-clause does not specify how soon after 8.30 pm an auction may be re-opened; the only requirement was that Grays must be "acting reasonably".
While the language of clause 4.6(b) is less emphatic, I also consider that it is implicit in Grays' power to re-open an auction that the customers agreed that any contracts of sale which had come into existence on the conclusion of the closed auction were also thereby cancelled. What is the point of re-opening a flawed auction to ensure that a fair and proper auction process is completed, if the item cannot be offered for sale by dint of a contract of sale which came into existence at the end of the flawed auction? By agreeing to the terms of the User Agreement, the vendor and bidders authorised Grays to re-open the auction and put the items up for auction regardless of such a contract, thereby acknowledging that such a contract was cancelled in the event that Grays took this step.

[25]

"acting reasonably"

The next question is whether Grays acted in conformity with clause 4.6 of the User Agreement. In considering this matter, it may be observed that technology not only caused the problem which Grays sought to address; technology also generated a blow-by-blow account of what each of Grays' staff were thinking as the problem occurred, unfolded and was resolved. A problem also emerges in assessing the import of staffs' contemporaneous comments, where several staff were not familiar with the User Agreement, including Mr Freeman and Ms Ashes. It is evident that different staff were aware of different pieces of information and held different views at different times. Not unusually, points of view changed as more information came to hand, more senior staff became involved and all stakeholders were consulted.
There is no doubt that there was a technological problem, which was immediately detected. The precise nature of the problem was not identified until more than an hour later, at 9.47 pm on 30 November 2021, and formally confirmed in an incident report prepared the next day and finalised on 2 December 2021. Immediately after the close of the auction, however, Grays was contacted by various people and informed that the car had sold for less than they had been prepared to bid. Mr Portelli told Mr Freeman that he would have paid $1 million, whilst Mr Anglin was contacted by an interested bidder who said he was prepared to pay more. Whilst Grays did not know what the car was worth, it recognised that the car was highly valuable. Grays knew that the auction had closed early and all Grays' staff agreed that it was unlikely that the car had reached its full potential in these circumstances.
Initial consideration was given to re-opening the auction. Mr Freeman informed Mr Bailey that Grays had experienced a technical issue and wanted to re-open the auction. Mr Bailey's response was hostile, "You'll be hearing from my lawyers if you do." Mr Freeman reported back to Mr Lang. At 8.51 pm, Mr Lang sent a Slack message to Mr Bray and Ms Ashes, "selling XBOSS". I find that Mr Lang thought it best not to re-open the auction in light of Mr Bailey's threat of legal proceedings, and to take the course of least resistance by proceeding with the sale of the car to the plaintiff. Mr Lang's decision can fairly be described as rash, where the IT team had yet to determine the cause of the problem and, more importantly, no-one had spoken to the vendor. Whether Mr Bray agreed with Mr Lang's decision at the time, or promptly over-ruled that decision, is un-documented. It appears that Mr Bray was not uncomfortable with Mr Lang's point of view that evening but became increasingly uncomfortable the next day. But nor do I think it is correct to regard Grays as having made a decision per se. Using the language of the User Agreement, Grays had not then decided to take action under clause 4.6.
The picture remained unclear the following morning. Mr Freeman's communications with Mr Anglin, and Mr Anglin's lie to the vendor, are consistent with Gray's having decided to simply sell the car to the plaintiff but also with Mr Anglin 'playing for time' until Grays made a decision. Mr Anglin's decision to lie to the vendor appears to have been his own idea. Similarly, Mr Freeman's text messages with Mr Flanagan, providing information requested to assist payment of Gray's invoice, is consistent both with a decision by Grays to sell the car to the plaintiff, and Mr Freeman simply responding to Mr Flanagan's requests for information while a decision remained outstanding. As mentioned, Mr Freeman's text message to Mr Portelli at 1.41 pm on 1 December 2021, "Still waiting," is consistent with an understanding on Mr Freeman's part that Grays had yet to make a decision in respect of the car.
By 2 December 2021, Mr Ahmed had completed his incident report. Mr Bray had conferred with Grays' general counsel and chief executive officer. Mr Anglin had voiced his disquiet. There was every reason to doubt that the car had sold for its full value. Grays decided to take action under clause 4.6 of the User Agreement. Grays' decision made on the morning of 2 December 2021 was not only reasonable but obviously correct. The decision was made after consultation with IT staff, general counsel, the chief executive officer, the 'successful' bidder of the first auction, the under bidder, Grays' staff and, very belatedly, the vendor. Taking action under clause 4.6 was in the interests of the vendor and other potential purchasers. Weighed against this, the plaintiff secured the car for a 'steal' by reason of the early closure of the auction. At the time that the decision was made and communicated to the plaintiff, all that it had done was make a post on Instagram and attempt a failed bank transfer. The only real prejudice to the plaintiff was the loss of the bargain that it had obtained at the expense of Mr Bitmead. Grays acted reasonably in giving little weight to those considerations.
Nor was Grays precluded from taking action under clause 4.6 by its earlier inaction. Even if Mr Lang's decision on the evening of the auction was an action under clause 4.6, there was nothing to preclude Grays taking further action, as long as that action was itself reasonable, viewed objectively and having regard to the information then known, or which reasonably ought to have been known. The question is simply whether Grays was "acting reasonably" when it did act. While I accept that intervening events may have made it unreasonable to take action on the morning of 2 December 2021, no such intervening events occurred here. For the reasons already stated, the action ultimately taken was in accordance with clause 4.6. The decision supported the integrity of the auction process, which had been cut short by a 'rogue' server, leaving the plaintiff with a bargain at the expense of the vendor.
Whilst Grays' contemporaneous communications referred variously to re-opening or cancelling the first auction, I think the better view is that Grays cancelled the auction and held a second auction. The second auction was different in format. Bidders were invited to participate, including some who had not bid at the first auction but had indicated that they had tried to bid or now wanted to bid. Nothing turns on this. Either way, the contract of sale which came into existence at the conclusion of the first auction was also cancelled when Grays took action under clause 4.6 of the User Agreement. There was no breach of contract as between the plaintiff and Grays.

[26]

The release

If I am wrong about this, then it is necessary to consider other provisions of the User Agreement, by which Grays sought to limit liability to its customers. In an Online Auction, Grays stated that it was not responsible for bids not received due to technological difficulties: clause 9.1(b). Further, clause 9.1(f) provided: Neither we nor our suppliers are liable for any lost profits or any consequential damages arising out of or in connection with the delivery of the Service or the sale of any goods.
Grays did not guarantee continuous, uninterrupted or secure access to its website, where operation of the website may be restricted by factors outside Grays' control or due to maintenance: clause 9.1(g). Further, clause 9.2(c) provided: In no case will Grays incur liability for any loss or damage exceeding the relevant sale or purchase price paid by you for an item [nor on account of losses or damages suffered by you including loss of profit, damage to property, or personal injury arising from that supply or that agreement, whether arising directly, incidentally or consequently.
Further, clause 9(3)(a) of the User Agreement contained a release on which Grays relies in defence of the plaintiff's claim: (emphasis added) You waive, release, discharge or relinquish any and all claims that you now have or may have against us, our affiliates, subsidiaries, parents, shareholders, directors, officers, employees, agents and representatives which are connected with, arise out of, relate to or are incidental to the use of the Service, except to the extent that any claim arises directly from our fraud, gross negligence or wilful misconduct.
Service meant any of the services offered by Grays including Online Auction sales: clause 18(aa). Online Auction meant a sale or prospective sale of an item by auction on a Site, being the Grays' website and mobile apps: clause 18(q) and (bb).
An issue of contractual construction arose in respect of the scope of the release. Such clauses are to be construed applying the same principles of construction, save that the clause may be construed contra proferentem in the case of ambiguity: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510 (per Mason, Wilson, Brennan, Deane and Dawson JJ). I was not pointed to any particular ambiguity.
The plaintiff submitted that its claim did not arise from the Service but from the purported termination of the contract of sale which came into existence after the first auction was concluded. The Service, being an online auction, was the process which identified the highest bidder at the end of the process. The plaintiff's claim was not caught by the release as it arose following conclusion of the use of the Service. It was submitted that another construction would render nugatory Grays' primary obligation to make the car available for collection (which rather presupposes that the contract of sale remained on foot).
That the release applied to events occurring after conclusion of the use of the Service is supported by the initial words of clause 9(3)(a), by which the customer released Grays from claims "that you now have or may have against us". That is, the customer released Grays from claims which existed at the time a customer agreed to be bound by the User Agreement and claims which arose after that point in time. Clause 9 referred to some of the situations in which such a claim may arise, including where the goods sold at auction are delivered to the customer and found wanting, prove unsafe or cause problems when put to use. Self-evidently, a customer's claim in respect of such a matter will only arise after the Service has been concluded, that is, the online auction is over, the goods have been paid for and delivered. Clause 9, including clause 9.3(a), is clearly directed to limiting Grays' exposure to customer claims in respect of such matters, that is, claims which arise after the conclusion of the Service.
Further, the release extends not only to claims in respect of the use of the Service but to claims which are "connected with, arise out of, relate to or are incidental to the use of the Service". It may assist to consider how these words and phrases have been construed. The expression "in connection with" is capable of having a wide meaning but depends on the context in which it is used. As Applegarth J put it in Samways v Workcover Queensland [2010] QSC 128, the words describe a spectrum of relationships between things, one of which is bound up with or involved in another: at [73].
The words "arising out of" are also wide, connoting a weak causal relationship: Samways at [72]. As Brereton J observed in respect of the phrase "arising from" in Quintano v B W Rose Pty Ltd [2008] NSWSC 793, the words require that there be some causal connection, with the requisite nexus being a less proximate relationship than that required by the phrase "caused by"; it is sufficient if it originates in, springs from, or has it foundation in the matter: at [7]. As Brereton J put it, "In my view, a claim can be said to arise from a matter - at least - if it has a foundation in that matter, so that the matter is one of the underlying facts that, if they exist, together justify the claim": at [8].
The expression "relating to" is extremely wide, predicating the existence of some kind of relationship, which is informed by the context in which the phrase appears: Tooheys Ltd v Commissioner of Stamp Duties (NSW) (1961) 105 CLR 602 at 620 (per Taylor J); O'Grady v Northern Queensland Co Ltd (1990) 169 CLR 356 at 367 (per Dawson J) ("something more than a coincidental or mere connexion … is necessary"); Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 387 (per McHugh, Gummow, Kirby and Hayne JJ). "Incidental to" has been held to mean liable to happen in connection with, or naturally appertaining to: The Wilderness Society Inc v Turnbull, Minister for the Environment and Water Resources [2007] FCAFC 175 at [47] (per Branson and Finn JJ).
Here, the plaintiff claims that Grays purported to take action under clause 4.6 of the User Agreement which it had no right to do, causing loss. Clause 4.6 applies "With respect to Online Auctions [that is, the Service] … if any errors or delays arise as a result of or in connection with technological difficulties…" Quite obviously, any action taken by Grays under clause 4.6 is directly related to the use of the Service. The power may only be exercised where a problem has arisen with the Service. The clause enables Grays to take action to ameliorate the difficulties caused by a technological error and thereby ensure that the Service is provided in accordance with the User Agreement. Whichever word or phrase used in the release is deployed, I consider that the release applies to a claim for damages sustained as a consequence of action taken under clause 4.6 of the User Agreement. Here, that action included cancelling the auction and, with it, any contract of sale.
Whilst Grays' initial inaction and subsequent action under clause 4.6 was imperfect, the plaintiff did not suggest that its claim arose directly from Grays' "fraud, gross negligence or wilful misconduct". As such, the plaintiff has released Grays from the claim which it now brings.

[27]

Damages

If I am wrong about all of this, then it is necessary to say something about the plaintiff's claim for damages. The plaintiff relied on expert evidence from forensic accountant Ian McKinnon, while Grays relied on forensic accountant Anh Nguyen. The second defendant's accountant, Joseph Raudino, also joined in the expert conclave, although had little to contribute given the lack of instructions from Mr Portelli. Mr Nguyen was the more impressive expert and I prefer his evidence.
The first problem with the plaintiff's claim for damages is that it was premised on the plaintiff 'raffling' the car differently to how it had done in the past. Mr Bailey saw the car as a 'springboard' for launching the plaintiff's brand internationally. While the plaintiff usually raffled a car over a ten week period, Mr Bailey said the plaintiff would have promoted the car over 23 weeks, beginning in February 2022 and ending in July 2023. In addition to the digital marketing usually deployed, Mr Bailey said the plaintiff would have promoted the raffle in shopping centres and using billboards. Promoting the car in this manner was thought likely to increase the plaintiff's "VIP memberships," where subscribers were charged each month by direct debit rather than buying individual raffle tickets. Mr Bailey estimated that the plaintiff would gain an additional 300 subscribers each week across the whole of the 23 week period, which he regarded as a conservative estimate.
Mr Nguyen's analysis indicated that the plaintiff would likely have attracted additional subscribers as a result of a promotion of the car, but for a short period of up to one week rather than a sustained increase of new subscribers each week for 23 weeks. Mr Nguyen's found no sustained period of new subscribers after any particular promotion was launched. Mr McKinnon agreed that a sustained increase in "VIP memberships" over the whole 23 week period was a weakness in his model.
When assessing the damages caused by a breach of contract, a more reliable guide to the counter-factual is how the plaintiff had conducted itself until that point in time. By the time of the auction, the plaintiff had been in business for two years and "trade promoted" some 25 vehicles. It is likely that the plaintiff would have promoted the car in the same way that it had promoted the other 25 vehicles.
The second problem with the plaintiff's case on damages is that its expert's calculations were based on a "score chart" prepared by Mr Bailey after these proceedings had commenced and for the purpose of the damages claim. Mr Bailey listed factors which he considered identified how well a particular vehicle would perform in a raffle, being rarity, publicity, notoriety, awards won, condition/quality and desirability. Using this score chart, Mr Bailey gave the car a top score, thought to indicate that the car would have generated significantly more income than any other raffle ever conducted by the plaintiff. Mr Portelli agreed with some of the factors identified by Mr Bailey, in circumstances where the second defendant was adopting a "me too" approach to damages rather than providing any evidence to ground an assessment of damages suffered by the second defendant if it was not the rightful owner of the car.
There was no scientific, empirical or expert basis for Mr Bailey's score chart, on which Mr McKinnon's calculations were based. Nor did Mr Nguyen find any linear correlation between the "score chart" and the financial outcomes for vehicles raffled by the plaintiff in the past. Consequently, Mr McKinnon's calculations fall by the wayside.
A third problem is that Mr Bailey said that, when the plaintiff did not acquire the car, it brought forward the 'raffle' of two other vehicles, which did not perform very well. Mr Bailey said he raffled these cars in order to recover the profits and brand awareness which he expected would have been generated by the car. Ultimately, the plaintiff sought $153,374 lost in these raffles. It was not obvious why these losses formed part of the plaintiff's damages. The plaintiff would have raffled these vehicles at some point, likely with similar results.
It cannot be assumed that, had the plaintiff acquired and raffled the car, it would have made a profit. Whilst the car may have attracted interest and the plaintiff may have sold a large number of raffle tickets, a much greater number of tickets would have had to be sold before the purchase price was recouped and the plaintiff began to make any money. Similarly, the longer the marketing period, the greater the marketing expense. Although Mr Bailey said that he managed marketing expenditure to ensure a return of 120%, I do not accept that he had the ability to ensure that the plaintiff's activities were profitable and enjoyed this return. The fact that 30% of the plaintiff's raffles lost money highlights the risks involved in any speculative business endeavour: see [168].
Putting Mr Bailey's "score card" to one side, Mr Nguyen estimated that the plaintiff's promotion of the car might result in a range of outcomes, from a loss of $141,900 to a profit of $679,300, based on a 23 week raffle and the associating marketing expenses. The midpoint of this range is $268,700.
I note that, by the end of July 2022 (when Mr Bailey said the raffle of the car would have concluded), the plaintiff had raffled 36 vehicles. Of these, 11 vehicles (or 30%) made a loss. The average loss was some $63,000. The remaining 25 vehicles (or 70%) made a profit. The profit ranged from $17,347 to $1,415,114. On average, the net profit was some $466,000. Across all 36 vehicles, the average result was a net profit of $304,361.
Doing the best I can, if the plaintiff had acquired the car after the first auction, I consider it likely that the raffle of the car would have generated a profit. Using the average net profit of vehicles raffled by the plaintiff at a profit (that is, excluding the results for vehicles raffled at a loss), the damages for breach of the User Agreement are assessed at the mid point of $466,000. I do not accept that the plaintiff would have embarked on a lengthier marketing campaign than usual. This assumption favours the plaintiff (when viewed against Mr Nyugen's figures).

[29]

Estoppel

Finally, in its reply, the plaintiff contended that Grays was estopped from denying the existence and validity of the contract of sale, asserting its right to re-open or cancel the auction, or cancelling the contract of sale. The plaintiff did not specify which form of estoppel was said to arise. The plaintiff's written submissions referred to estoppel by representation, promissory estoppel, and estoppel by convention but the plaintiff's senior counsel would not be drawn on a final selection.
Each form of estoppel referred to by the plaintiff in its closing submission requires the plaintiff to have relied on some sort of representation by the defendant or assumed the existence of some sort of state of affairs: Franklin v Manufacturers Mutual Insurance Ltd (1936) 36 SR (NSW) 76 at 82; Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428; Moratic Pty Ltd v Gordon [2007] NSWSC 5 at [32]. The only representation or assumption identified by the plaintiff in its pleadings was with respect to the existence of a contract of sale. That, however, was uncontentious. Grays accepted the existence of the contract of sale. The issue was whether Grays would take action under clause 4.6 of the User Agreement to bring the contract of sale to an end. The plaintiff did not plead any representation or assumption as to Grays' decision or intention to take such action. Accordingly, even if the plaintiff's various potential estoppel claims were made out, the only effect would be that Grays was estopped from denying the existence of the contract of sale. This would not take the plaintiff's case any further.
Nor, for that matter, was it established that the plaintiff would suffer detriment in the relevant sense if Grays was allowed to derogate from any representation/ common assumption. The plaintiff would simply be deprived of having acquired the car for a 'steal' as a result of a technological problem with the online auction. Being deprived of such a 'bargain' is not, I think, the sort of detriment that estoppel will prevent.

[30]

Cross claim

As for the second defendant's cross-claim against the plaintiff, the second defendant seeks damages under section 271 of the Personal Property Securities Act 2009 (Cth) (PPSA), presumably based on registration of a security interest without a belief on reasonable grounds that plaintiff was, or would become, a secured party: section 151. The plaintiff submitted that its transaction with Grays gave rise to a security interest in the car, which secured Grays' obligation to transfer title and deliver the car. The second defendant submitted that, if the plaintiff had an interest in the car, it was not a security interest.
Section 12(1) of the PPSA provides: A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). A security interest includes an interest in personal property provided by a transfer of title, if the transaction, in substance, secures payment or performance of an obligation: section 12(2)(k).
As Santamaria JA observed in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2014] VSCA 326, there are four elements in section 12(1), at [107] ff: 1. there must have been an outstanding existing monetary or non-monetary obligation; 2. there must have been an 'in substance security' to support the performance of that obligation; 3. the security must amount to an 'interest' in personal property; 4. the interest must arise out of a transaction, being a consensual transaction inter partes.
There are two problems with the plaintiff's claim that it had (or believed on reasonable grounds that it had) a security interest in the car. First, section 12(1) requires the existence of an outstanding obligation. On the day that the plaintiff registered its security interest, its solicitors wrote to Grays' solicitors asserting that 'title has passed' pursuant to clause 10.3(e) of the User Agreement. That is, at the time the security interest was registered, the plaintiff considered that title had already passed by operation of the User Agreement (as Grays had received payment in cleared funds). In those circumstances, the suggestion that the plaintiff believed that Grays had an outstanding obligation to transfer title is undermined. The only outstanding obligation asserted was to deliver up the car.
Second, and most important, whilst the plaintiff may have believed on reasonable grounds that it had an interest in the car and that Grays was obliged to deliver up the car, the mere existence of such an interest and obligation is not sufficient. Section 12(1) requires a connection between the interest granted and the obligation owed, such that the interest can be said to have secured 'in substance' the obligation. Nothing in the User Agreement indicates such a connection. Clause 10 of the User Agreement outlines the parties' obligations with respect to delivery of the car, but does not provide the plaintiff with any recourse to an interest in the car if Grays fails to do so. There is simply nothing in the User Agreement to suggest that Grays' obligation to deliver the car was supported by a security interest in the car. It cannot be said that there was a consensual transaction between the plaintiff and Grays, which gave rise to a 'security interest' in the car. In these circumstances, regardless of the plaintiff's belief that it had title to the car, or that Grays had an outstanding obligation to deliver the car, there was no reasonable basis to believe that it had a 'security interest' in the car.
The absence of reasonable grounds for the plaintiff's belief that it had a security interest is, however, moot. The second defendant sought damages for the period in which the security interest was registered. There is no evidence as to what loss, if any, was sustained by the second defendant during the seven week period. Whilst Mr Raudino estimated the second defendant's holding costs per month at 3.5% interest, the basis for selecting this rate is not known. There was no evidence as to whether the second defendant purchased the car with funds which it then had to hand or had to borrow money to fund the purchase. In the absence of any evidence, I am not prepared to award damages.

At a glance

Court

Decision date

Before

Source

Judgment (32 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (15)

Cited By (2)